Ah, the high-earner life—shouldn’t it feel different? More luxurious? Yet, many people who earn more than $250,000 feel strangely stretched. And it’s not just you; it’s real. From lifestyle creep to hefty taxes, that six or seven-figure income can dwindle in surprising ways. Let’s dive into why this happens and how to regain control.

1. Revisit Your Values

Before we can talk about why your income feels smaller than it should, you need to take a moment to remember what is driving you. Why are you earning money in the first place? By

revisiting what matters most—family, travel, security—you might find that some expenses don’t contribute much to your happiness or goals.

Once you have those things that matter most in mind, it’s time to perform a reality check. What are you actually spending your money on? If your spending doesn’t match what you value most, it’s worth pausing to recalibrate.

2. Analyze Your Cash Flow

Once you’ve refreshed and recentered your values, it’s time to dig into cash flow. With significant income, small leakages become big drains. Subscriptions, extra services, impulse buys—they can add up. Even though it may feel tedious, it’s important to “check under the hood” by mapping out every dollar coming in and going out.

An annual cash flow audit works well to detect recurring costs and expenses that haven’t added value. I encourage looking at a month’s worth of credit card and bank statements and taking a visual inventory by walking through your home, workplace, and calendar to remind yourself of both tangible and intangible purchases (think new appliances or concert tickets).

3. Look for Lifestyle Creep

Lifestyle creep is sneaky. It’s the little voice that says, “Hey, you’ve earned this—go ahead, upgrade!” And before you know it, your life has a few extra zeroes attached. Think bigger house, luxury car, high-end gym membership, or private school for the kids. While these things feel deserved, they come with hidden costs that pile up quickly.

Factoring in Extra Costs:

It’s not just about the initial cost. Every new purchase often brings along hidden side expenses:

• The Fancy Car: That luxury car? It needs a secure garage spot, especially in urban areas where parking can cost as much as a small mortgage. There are higher insurance rates and, of course, it deserves regular detailing (goodbye, DIY car washes).

• New Home, New Bills: Moving to a larger, upscale home isn’t just about the mortgage; it’s also about increased utilities, maintenance costs, and property taxes. Depending on where you live, a higher-end neighborhood might mean HOA fees that cover community amenities, which adds yet another expense to your monthly ledger.
• School & Extracurriculars: Once the kids are in private school, the costs go beyond tuition—think uniforms, field trips, and extracurricular activities. Suddenly, you’re sponsoring your little one’s rowing team and investing in French tutors.

Lifestyle creep isn’t always obvious, so take a close look at your budget. What were last year’s splurges that are now routine? What’s costing more than anticipated? By consciously scaling

back on some of these add-ons, you can make room for what genuinely aligns with your values—and bring your budget under control.

4. Factor in the Tax Tipping Point

Earning over $250,000 doesn’t mean you’re in the highest tax bracket yet but rather inching toward that million-dollar mark. Get ready for the tax whammy. In high-tax states like New York or California, the bill can swallow over 50% of your income. A higher income can feel like much less when so much of it goes to taxes.

Federal Income Tax Brackets for 2024

The federal income tax system is progressive, meaning higher income is taxed at higher rates. For the 2024 tax year, the brackets for single filers are as follows:

State Income Tax Rates

In addition to federal taxes, state taxes can significantly impact your overall tax burden.

• New York: The state income tax rates as high as 10.9%.
• California: The state has a progressive tax system with rates as high as 12.3%.

Combined Tax Impact

When combining federal and state taxes, high-income earners in these states can face marginal tax rates right at 50%. For example, a single filer in California earning over $1 million would be subject to a 37% federal rate plus a 12.3% state rate, totaling 49.3%. This doesn't include additional taxes such as the Medicare surtax.

Strategies to Mitigate Tax Burden

To manage your tax liability:

• Tax-Advantaged Accounts: Maximize contributions to retirement accounts like 401(k)s and IRAs to reduce taxable income.
• Charitable Contributions: Donations to qualified organizations can provide deductions.
• Tax-Efficient Investments: Consider investments that offer favorable tax treatment, such as municipal bonds, which may be exempt from federal and state taxes.

Understanding the tax landscape is crucial for high-income earners to effectively manage their finances and retain more of their hard-earned money.

4. Understand Your Equity Compensation Package

If part of your income is tied to an equity compensation package, think about stock options, RSUs, etc.; this can make income feel unpredictable. While these perks are valuable, they’re not exactly liquid cash, which makes regular expenses feel tight.

So, what does this mean day-to-day? For one, it’s easy to overestimate how much cash you actually have at your disposal. A portion of your income might feel “locked up.” To get the most out of your equity, it’s important to think ahead. When does your equity vest? Are there specific times when selling will be more advantageous tax-wise?

Values-based Financial Planning with Servet Wealth Management

If wrapping your mind around equity packages and tax advantages sounds daunting, that’s understandable. Add your unique values and goals to that picture, and it’s easy to see that there is no one-size-fits-all approach to wealth management.

Working with an expert can help you put all the pieces in place. At Servet Wealth Management, we can help you put together your individualized plan. Not only are we experts in the facts and figures regarding tax planning and compensation packages, but we also understand how to fit these pieces together in your values-driven life.

To see if we can help you create a comprehensive financial strategy that balances your core values with your long-term wealth goals, click here to schedule a conversation today.

With a solid plan in place, you don’t have to worry about whether your income is enough; you’ll be in alignment and know precisely what it is you want, both now and for the future.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

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